3154 There is much exuberance in the Mac orbit this week over news from market research and analysis firm Gartner Group that Apple has edged past Taiwan-based Acer into third-place spot for computer sales volume in the U.S. with 8.5 percent of the domestic personal computer market, although it still ranks sixth globally. However, domestically, according to Gartner estimates, Apple's sales now surpass all competitors save for for Dell and HP, showing amazing sales growth of 38.1 percent year-over-year, and that's with fourth-place Acer having gobbled up Gateway and Packard Bell whose sales are included in the Acer total. Gartner' market research competitor IDC in its report this week pegged Apple's gains somewhat lower, at a 7.8 percent share, up from 6.2 percent a year earlier, and with slightly slower growth (31.7%), locked in a virtual dead heat with Acer (Apple trailing by 2,000 units), but the trend is the same with Apple shipping an estimated 2.37 million Macs worldwide in the quarter.

Apple at either 8.5 percent or 7.8 percent of the personal computer market (up from 6.4 or 6.2 percent in the quarter a year earlier) is a figure unheard of by a generation or two of Mac-Users, although a few of us grizzled veterans can remember back to the early '80s when Apple (pre-Mac) had a heady 15 percent of the PC market. However, those sepia-toned nostalgic recollections need a bit of reality-checking for context.

For one thing, there was no DOS/Windows PC in 1980, and for that matter no Mac, so it's more than a bit of and oranges and.... well... Apples comparison. Apple's big competition in those days was from companies like Commodore and Sinclair that have long since faded into oblivion. And actually, the personal computer market in a mass consumer commodity sense was itself still in the future. In those days, only geeks bought personal computers, and Apple's 15 percent slice was from a very small pie by today's standards.

By 1995, 11 years into the Mac era and on the eve of Microsoft's Windows 95 release, Apple's share was just under five percent of the PC market, which is arguably a more realistic figure to use as a comparative base-line for today's figures. And of course the corollary to that is that Microsoft and its hardware vendor partners had roughly 95 percent of the PC market represented by the DOS/Windows operating system platform, which seemed to make the Mac's five percent pale by significance, although the reality was that the prices Apple charged for its hardware systems in the mid-90s had essentially ceded the mass market for the PC as a commodity to DOS/Windows by default, and it really wasn't that the Mac's market impact had eroded by two-thirds over the preceding 15 years, but looked at from another, "think different," perspective, it was a pretty impressive showing that the Mac had as much as five percent.

Just how remarkable that figure was slowly morphed into focus over the subsequent 10 years, with the Mac's market share nadir being plumbed in '95 - '96 at just above two percent in those dark days when virtually all news mention of Apple was preceded by the descriptor "beleaguered," and there was much serious and not-unwarranted speculation that the company might be taken over or even fold and disappear as so many of its competitors of the early-'80s era had.

But then in 1997, Steve Jobs returned, bringing with him his NextStep operating system that would be metamorphosed into Mac OS X, and most folks reading this column will be aware of what happened over the next ten years, which brings us back to the present and the 8.5 percent showing, which in real terms can be regarded as Apple's actual best market share performance in the commodity PC era ever, and with the momentum trending sharply higher.

In a macro-analysis context, Apple's market status looks even better. Apple still doesn't compete in the bottom-feeding end of the market, and back in May, research firm NPD Group revealed that Apple enjoyed a dominant share of the U.S. retail market for high-end computers in the first quarter of 2008, selling two out of every three PCs priced over $1,000, which all Macs are except for the Mac mini, which is priced without a monitor, keyboard or mouse.

One of the key factors in Apple's buoyant market performance in recent years has been its strong presence in the laptop computer sector, with Mac laptop sales showing '07-'08 year-over-year growth of more than 50 percent, with its desktop sales growing by a more modest 45 percent (mostly on the strength of the aluminum iMac), while during the same period the Windows PC market idled with zero growth in laptop sales and a 25 percent decline in desktop sales - both of which have now turned around somewhat with PC shipments in the United States reaching 16.5 million units in the second quarter of 2008, a 4.2 percent increase from the same period last year.

However, there are some storm clouds on the horizon, so to speak, and the fallout from the sub-prime mortgage fiasco and the near-doubling of oil prices works its way through the U.S. and by extension world economies, and the market's nominal acceleration appears to have been achieved at the expense of revenues as vendors cut prices in response to the economic downturn and widespread uncertainty.

Mika Kitagawa, principal analyst for Gartner's Client Computing Markets group noted this week that "Mobile PCs continued to lead unit growth across all regions as the average selling price (ASP) of mobile PCs declined sharply relative to desk-based PC ASPs. Economic uncertainties have hit PC revenues, resulting in steep ASP declines, especially in markets such as the United States and the Europe, Middle East, and Africa (EMEA) region. The industry could ultimately see a significant wave of consolidation if stronger vendors continue to press their pricing advantage."

In January of this year, Gartner Group forecast that Apple would double its PC market share in the U.S. and Western Europe in computers by 2011, and current growth figures indicate that would be a possible objective. The most robust market performance is being seen in the home PC and education segment where Apple is particularly strong. Gartner also predicted that by 2012 half of business travelers will be leaving their laptops at home to travel with smaller units running Web-based applications that can be accessed anywhere there's wireless service. With the iPhone, Apple is well-poised to be able to take advantage of that market development.

Another potential trend related to the widespread adoption of smartphones and mini-notebooks could be a comeback for the desktop PC that some folks are predicting, although being convinced of the laptop's superiority I remain cautiously skeptical. That said, this week IDG News Service's Dan Nystedt posted a column noting that Converge, a company that works with chip spot markets, reporting report Wednesday that a shortage has emerged in desktop microprocessors, the report commenting that "The story of the third quarter has been the dramatic resurgence of shortages in the desktop market after a sustained period of relative calm."

THe article cites Gartner's observation that because desktop PCs cost less than laptops, they present a less expensive option for businesses with tightening IT budgets. That could pose an area of vulnerability for Apple, which has long had a hole in its desktop computer lineup where many critics contend a mid-range and mid-priced desktop model between the iMac and the Mac Pro towers should be.

On the other hand, the article cites Intel noting in its second quarter results, which were announced Tuesday, that number of laptop microprocessors it shipped in Q2 exceeded the number of desktop microprocessor shipments for the first time, occurring six months sooner than Intel had expected.

"We saw notebook unit shipments cross over desktops in the overall client PC category in the second quarter," Paul Otellini, Intel's president and CEO, is quoted saying during a conference call. "What I think we're seeing is a fundamental shift to notebooks."

I'm inclined to agree, and of course Apple crossed that watershed back in the early '00s. However, a looming problem for Apple is that it is not represented in an emerging new laptop market category.

TheStreet.com's Jonathan Blum this week chronicles a burgeoning trend toward "netbooks," which he defines as "a quick and relatively cheap portable computer that not only gets your small business more virtual but keeps your people off the road - and away from burning pricey fossil fuels....a line of computers with average computational power suited to run both standard business applications and the new generation of online business process apps delivered via the Web."

The typical netbook, says Blum, is relatively light, around four pounds, being nothing like the under-two-pound ultraportables, but lighter than eight-pound-plus desktop replacements, relatively cheap, starting in the $500ish range, with properly configured units running around $700. Apple's cheapest laptop is the entry-level MacBook, which sells for $1,099.00.

Blum says that Netbooks offer relatively modest performance, making them unsuitable for Photoshop and other hardware-taxing applications applications, but offer perfectly reasonable results running Web-based apps like Google Docs and offline tools like Microsoft Office while having sufficient hardware power ( say, 1.6 GHz clock speed and 2 GB of RAM) to support wireless access, Bluetooth and USB.

If you think that this sounds like your idea of an Intel-based replacement for Apple's late, much-lamented, four-pound 12" PowerBook, we're on the same page. The MacBook Air has enjoyed very respectable sales performance, at least initially, but it's a bit of a premium-priced boutique piece given its functional and engineering limitations, and I'm among the sizable cohort that still believes Apple needs a more comprehensively featured and capable subnotebook along the lines of the "netbook" profile Mr. Blum has described.

However, Apple's prospects are looking brighter than they have in nearly two decades, and 10 percent or more market share now seems easily in reach, probably before this decade is out.

Cool.

Charles W. Moore

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